Export Controls: Change in Licensing Jurisdiction for Commercial
Communications Satellites (Testimony, 09/17/98, GAO/T-NSIAD-98-222).

GAO discussed the military sensitivity of commercial communications
satellites and the implications of the 1996 change in export licensing
jurisdiction, focusing on: (1) key elements in the export control
systems of the Departments of Commerce and State; (2) how export
controls for commercial satellites have evolved over the years; (3) the
concerns and issues debated over the transfer of commercial
communications satellites to the export licensing jurisdiction of
Commerce; (4) the safeguards that may be applied to commercial satellite
exports; and (5) observations on the current export control system.

GAO noted that: (1) the U.S. export control system--comprised of both
the Commerce and State systems--is about managing risk; (2) exports to
some countries involve less risk than to other countries and exports of
some items involve less risk than others; (3) the planning of a
satellite launch with technical discussions and exchanges of information
taking place over several years involves risk no matter which agency is
the licensing authority; (4) recently, events have focused concern on
the appropriateness of Commerce jurisdiction over communication
satellites; (5) this is a difficult judgment; (6) by design, Commerce's
system gives greater weight to economic and commercial concerns,
implicitly accepting greater security risks; and (7) by design, State's
systems gives primacy to national security and foreign policy concerns,
lessening--but not eliminating--the risk of damage to U.S. national
security interests.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-NSIAD-98-222
     TITLE:  Export Controls: Change in Licensing Jurisdiction for 
             Commercial Communications Satellites
      DATE:  09/17/98
   SUBJECT:  Jurisdictional authority
             Dual-use technologies
             Export regulation
             Interagency relations
             Licenses
             International trade restriction
             Technology transfer
             Foreign trade policies
             Communication satellites
IDENTIFIER:  China
             Dept. of Commerce Control List
             U.S. Munitions List
             
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Cover
================================================================ COVER


Before the Committee on Commerce, Science, and Transportation, U.S. 
Senate

Release on Delivery
Expected at
9:30 a.m., EDT
Wednesday,
September 17, 1998

EXPORT CONTROLS - CHANGE IN
LICENSING JURISDICTION FOR
COMMERCIAL COMMUNICATIONS
SATELLITES

Statement of Katherine V.  Schinasi, Associate Director, Defense
Acquisitions Issues, National Security and International Affairs
Division

GAO/T-NSIAD-98-222

GAO/NSIAD-98-222T


(707374)


Abbreviations
=============================================================== ABBREV


============================================================ Chapter 0

Mr.  Chairman and Members of the Committee: 

I am pleased to be here today to discuss the evolution of export
controls on commercial communications satellites.  The allegation
that a major U.S.  satellite manufacturer provided China with
sensitive technologies that may have applicability to its missile
programs has highlighted how the United States controls the export of
such technology and how this policy has changed in recent years. 

My testimony today is based on our January 1997 report, prepared at
the request of the Chairman, House National Security Committee, on
the military sensitivity of commercial communications satellites and
the implications of the 1996 change in export licensing
jurisdiction.\1 I will discuss (1) key elements in the export control
systems of the Departments of Commerce and State, (2) how export
controls for commercial satellites have evolved over the years, (3)
the concerns and issues debated over the transfer of commercial
communications satellites to the export licensing jurisdiction of the
Department of Commerce, and (4) the safeguards that may be applied to
commercial satellite exports.  Lastly, I will share some observations
on the current export control system. 


--------------------
\1 Export Controls:  Change in Export Licensing Jurisdiction for Two
Sensitive Dual-Use Items (GAO/NSIAD-97-24, Jan.  14, 1997). 


   SUMMARY
---------------------------------------------------------- Chapter 0:1

The U.S.  export control system--comprised of both the Commerce and
State systems--is about managing risk.  Exports to some countries
involve less risk than to other countries and exports of some items
involve less risk than others.  The planning of a satellite launch
with technical discussions and exchanges of information taking place
over several years involves risk no matter which agency is the
licensing authority.  Recently, events have focused concern on the
appropriateness of Commerce jurisdiction over communication
satellites.  This is a difficult judgment.  By design, Commerce's
system gives greater weight to economic and commercial concerns,
implicitly accepting greater security risks.  And by design, State's
system gives primacy to national security and foreign policy
concerns, lessening--but not eliminating--the risk of damage to U.S. 
national security interests. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

The U.S.  export control system for items with military applications
is divided into two regimes.  State licenses munitions items, which
are designed, developed, configured, adapted, or modified for
military applications, and Commerce licenses most dual-use items,
which are items that have both commercial and military applications. 
Although the Commerce licensing system is the primary vehicle to
control dual-use items, some dual-use items--those of such military
sensitivity that stronger control is merited--are controlled under
the State system. 

Commercial communications satellites are intended to facilitate civil
communication functions through various media, such as voice, data,
and video, but they often carry military data as well.  In contrast,
military communications satellites are used exclusively to transfer
information related to national security and have one or more of nine
characteristics that allow the satellites to be used for such
purposes as providing real-time battlefield data and relaying
intelligence data for specific military needs.  In addition, the
technologies used to integrate a satellite to its launch vehicle are
similar to those used to integrate ballistic missiles to their launch
vehicles. 

In March 1996, the executive branch announced a change in licensing
jurisdiction transferring two items--commercial jet engine hot
section technologies and commercial communications satellites--from
State to Commerce.  In October and November 1996, Commerce and State
published regulations implementing this change, with Commerce
defining enhanced export controls to apply when licensing these two
items. 


   KEY ELEMENTS OF U.S.  EXPORT
   CONTROL SYSTEM
---------------------------------------------------------- Chapter 0:3

State and Commerce's export control systems are based on
fundamentally different premises.  The Arms Export Control Act gives
the State Department the authority to use export controls to further
national security and foreign policy interests, without regard to
economic or commercial interests.  In contrast, the Commerce
Department, as the overseer of the system created by the Export
Administration Act, is charged with weighing U.S.  economic and trade
interests along with national security and foreign policy interests. 

Differences in the underlying purposes of the control system are
manifested in the systems' structure.  Key differences reflect

  -- who participates in licensing decisions,

  -- scope of controls,

  -- time frame for the decision,

  -- coverage by sanctions, and

  -- requirements for congressional notification. 

Participants.  Commerce's process involves five agencies--the
Departments of Commerce, State, Defense, Energy, and the Arms Control
and Disarmament Agency.  Other agencies can be asked to review
specific license applications.  For most items, Commerce approves the
license if there is no disagreement from reviewing agencies.  When
there is a disagreement, the chair of an interagency group known as
the Operating Committee, a Commerce official, makes the initial
decision after receiving input from the reviewing agencies.  This
decision can be appealed to the Advisory Committee on Export Policy,
a sub-cabinet level group comprised of officials from the same five
agencies, and from there to the cabinet-level Export Administration
Review Board, and then to the President. 

In contrast, the State system commonly involves only Defense and
State.  While no formal multi-level review process exists, Defense
officials stated that license applications for commercial
communications satellites are frequently referred to other agencies,
such as the Arms Control and Disarmament Agency, the National
Security Agency, and the Defense Intelligence Agency.  Day-to-day
licensing decisions are made by the Office of Defense Trade Controls,
but disagreements could be discussed through organizational levels up
to the Secretary of State. 

This difference in who makes licensing decisions underscores the
weight the two systems assign to economic and commercial interests
relative to national security concerns.  Commerce, as the advocate
for commercial interests, is the focal point for the process and
makes the initial determination.  Under State's system, Commerce is
not involved, underscoring the primacy of national security and
foreign policy concerns. 

Scope of controls.  The two systems also differ in the scope of
controls.  Commerce controls items to specific destinations for
specific reasons.  Some items are subject to controls targeted to
former communist countries while others are controlled to prevent
them from reaching countries for reasons that include antiterrorism,
regional stability, and nonproliferation.  In contrast, munitions
items are controlled to all destinations, and State has broad
authority to deny a license; it can deny a request simply with the
explanation that it is against U.S.  national security or foreign
policy interests. 

Time frames.  Commerce's system is more transparent to the license
applicant than State's system.  Time frames are clearly established,
the review process is more predictable, and more information is
shared with the exporter on the reasons for denials or conditions on
the license. 

Sanctions.  The applicability of sanctions may also differ under the
two export control systems.  Commercial communications satellites are
subject to two important types of sanctions:  (1) Missile Technology
Control Regime and (2) Tiananmen Square sanctions.  Under Missile
Technology sanctions, both State and Commerce are required to deny
the export of identified, missile-related goods and technologies. 
Communications satellites are not so-identified but contain
components that are identified as missile-related.  When the United
States imposed Missile Technology sanctions on China in 1993, exports
of communications satellites controlled by State were not approved
while exports of satellites controlled by Commerce were permitted. 

Under Tiananmen Square sanctions, satellites licensed by State and
Commerce have identical treatment.  These sanctions prohibit the
export of satellites for launch from launch vehicles owned by China. 
However, the President can waive this prohibition if such a waiver is
in the national interest. 

Congressional notification.  Exports under State's system that exceed
certain dollar thresholds (including all satellites) require
notification to the Congress.  Licenses for Commerce-controlled items
are not subject to congressional notification, with the exception of
items controlled for antiterrorism.  However, the Congress is
notified of presidential waivers of the Tiananmen Square sanctions
under both the State and Commerce systems. 


   EVOLUTION OF EXPORT CONTROLS
   FOR COMMERCIAL SATELLITES
---------------------------------------------------------- Chapter 0:4

Export control of commercial communications satellites has been a
matter of contention over the years among U.S.  satellite
manufacturers and the agencies involved in their export licensing
jurisdiction--the Departments of Commerce, Defense, State, and the
intelligence community.  To put their views in context, I would now
like to provide a brief chronology of key events in the transfer of
commercial communications satellites to the Commerce Control List.\2


--------------------
\2 For a chronology and background information on satellite launches
from China, see China:  Possible Missile Technology Transfers from
U.S.  Satellite Export Policy--Background and Chronology, by Shirley
A.  Kan, Congressional Research Service, May 20, 1998 (98-485 F). 


      ORIGIN OF COMMERCIAL SPACE
      COOPERATION WITH CHINA
-------------------------------------------------------- Chapter 0:4.1

As the demand for satellite launch capabilities grew, U.  S. 
satellite manufacturers looked abroad to supplement domestic
facilities.  In 1988, President Reagan decided to allow China to
launch U.S.-origin commercial satellites.  The United States and
China signed an agreement in January 1989 under which China agreed to
charge prices for commercial launch services similar to those charged
by other competitors for launch services and to launch nine
U.S.-built satellites through 1994. 

Following the June 1989 crackdown by the Chinese government on
peaceful political demonstrations on Tiananmen Square in Beijing,
President Bush imposed export sanctions on China.  President Bush
subsequently waived these sanctions for the export of three
U.S.-origin satellites for launch from China.  In February 1990, the
Congress passed the Tiananmen Square sanctions law (P.L.  101-246) to
suspend certain programs and activities relating to the Peoples
Republic of China.  This law also suspends the export of U.S. 
satellites for launch from Chinese-owned vehicles. 


      FIRST TRANSFER OF LICENSING
      JURISDICTION
-------------------------------------------------------- Chapter 0:4.2

In November 1990, the President ordered the removal of dual-use items
from State's munitions list unless significant U.S.  national
security interests would be jeopardized.  This action was designed to
bring U.S.  controls in line with the industrial (dual-use) list
maintained by the Coordinating Committee for Multilateral Export
Controls, a multilateral export control arrangement.  Commercial
communications satellites were contained on the industrial list. 
Pursuant to this order, State led an interagency review, including
officials from Defense, Commerce, and other agencies to determine
which dual-use items should be removed from State's munitions list
and transferred to Commerce's jurisdiction.  The review was conducted
between December 1990 and April 1992.  As part of this review, a
working group identified and established performance parameters for
the militarily-sensitive characteristics of communications
satellites.  During the review period, industry groups supported
moving commercial communications satellites, ground stations, and
associated technical data to the Commerce Control List. 

In October 1992, State issued regulations transferring jurisdiction
of some commercial communications satellites to Commerce.  These
regulations also defined what satellites remained under its control
by listing nine militarily sensitive characteristics that, if
included in a commercial communication satellite, warranted their
control on State's munitions list.  (These characteristics are
discussed in app.  1.) The regulations noted that parts, components,
accessories, attachments, and associated equipment (including ground
support equipment) remained on the munitions list, but could be
included on a Commerce license application if the equipment was
needed for a specific launch of a commercial communications satellite
controlled by Commerce.  After the transfer, Commerce noted that this
limited transfer only partially fulfilled the President's 1990
directive. 


      INTERAGENCY GROUPS CONSIDER
      WHETHER TO TRANSFER
      ADDITIONAL SATELLITES
-------------------------------------------------------- Chapter 0:4.3

Export controls over commercial communications satellites were again
taken up in September 1993.  The Trade Promotion Coordinating
Committee, an interagency body composed of representatives from most
government agencies, issued a report in which it committed the
administration to review dual-use items on the munitions list, such
as commercial communications satellites, to expedite moving them to
the Commerce Control List. 

Industry continued to support the move of commercial communications
satellites, ground stations, and associated technical data from State
to Commerce control.  In April 1995, the Chairman of the President's
Export Council met with the Secretary of State to discuss issues
related to the jurisdiction of commercial communications satellites
and the impact of sanctions that affected the export to and launch of
satellites from China. 

Also in April 1995, State formed the Comsat Technical Working Group
to examine export controls over commercial communications satellites
and to recommend whether the militarily sensitive characteristics of
satellites could be more narrowly defined consistent with national
security and intelligence interests.  This interagency group included
representatives from State, Defense, the National Security Agency,
Commerce, the National Aeronautics and Space Agency, and the
intelligence community.  The interagency group reported its findings
in October 1995. 

Consistent with the findings of the Comsat Technical Working Group
and with the input from industry through the Defense Trade Advisory
Group, the Secretary of State denied the transfer of commercial
communications satellites to Commerce in October 1995 and approved a
plan to narrow, but not eliminate, State's jurisdiction over these
satellites. 


      PRESIDENT TRANSFERS
      JURISDICTION TO COMMERCE
-------------------------------------------------------- Chapter 0:4.4

Unhappy with State's decision to retain jurisdiction of commercial
communications satellites, Commerce appealed it to the National
Security Council and the President.  In March 1996, the President,
after additional interagency meetings on this issue, announced the
transfer of export control authority for all commercial
communications satellites from State to Commerce.  A key part of
these discussions was the issuance of an executive order in December
1995 that modified Commerce's procedures for processing licenses. 
This executive order required Commerce to refer all licenses to
State, Defense, Energy, and the Arms Control and Disarmament Agency. 
This change addressed a key shortcoming that we had reported on in
several prior reviews.\3

In response to the concerns of Defense and State officials about this
transfer, Commerce agreed to add additional controls to exports of
satellites designed to mirror the stronger controls already applied
to items on State's munitions list.  Changes included the
establishment of a new control, the significant item control, for the
export of sensitive satellites to all destinations.  The policy
objective of this control--consistency with U.S.  national security
and foreign policy interests--is broadly stated.  The functioning of
the Operating Committee, the interagency group that makes the initial
licensing determination, was also modified.  This change required
that the licensing decision for these satellites be made by majority
vote of the five agencies, rather than by the chair of the Committee. 
Satellites were also exempted from other provisions governing the
licensing of most items on the Commerce Control List. 

In October and November 1996, Commerce and State published changes to
their respective regulations, formally transferring licensing
jurisdiction for commercial communications satellites with militarily
sensitive characteristics from State to Commerce.  Additional
procedural changes were implemented through an executive order and a
presidential decision directive issued in October 1996. 


--------------------
\3 See Export Controls:  Some Controls Over Missile-Related
Technology Exports to China Are Weak (GAO/NSIAD-95-82, Apr.  17,
1995) and Export Controls:  Concerns Over Stealth-Related Exports
(GAO/NSIAD-95-140, May 10, 1995). 


   CONCERNS AND ISSUES DEBATED IN
   THE DECISION
---------------------------------------------------------- Chapter 0:5

According to Commerce officials, the President's March 1996 decision
reflected Commerce's long-held position that all commercial
communications satellites should be under its jurisdiction.  Commerce
argued that these satellites are intended for commercial end use and
are therefore not munitions.  Commerce maintained that transferring
jurisdiction to the dual-use list would also make U.S.  controls
consistent with treatment of these items under multilateral export
control regimes. 

Manufacturers of satellites supported the transfer of commercial
communications satellites to the Commerce Control List.  They
expressed concern that, under State's jurisdiction, the satellites
were subject to Missile Technology sanctions requiring denial of
exports and to congressional notifications.  Satellite manufacturers
also stated that such satellites are intended for commercial end use
and are therefore not munitions subject to State's licensing process. 
They also believed that the Commerce process was more responsive to
business due to its clearly established time frames and
predictability of the licensing process.  Satellite manufacturers
also expressed the view that some of the militarily sensitive
characteristics of communications satellites are no longer unique to
military satellites. 

Defense and State point out that the basis for including items on the
munitions list is the sensitivity of the item and whether it has been
specifically designed for military applications, not how the item
will be used.  These officials have expressed concern about
disclosure of technical data to integrate the satellite with the
launch vehicle because satellite integration technologies can also be
applied to launch vehicles that carry ballistic missiles to improve
the missiles' performance and reliability.  The process of planning a
satellite launch takes several years, and there is concern that
technical discussions between U.S.  and foreign representatives may
lead to the transfer of information on militarily sensitive
components.  They also expressed concern about the operational
capability that specific characteristics, in particular antijam
capability, crosslinks, and baseband processing, could give a
potential adversary. 

Defense and State officials said they were particularly concerned
about the technologies to integrate the satellite to the launch
vehicle because this technology can also be applied to launch
ballistic missiles to improve their performance and reliability. 
Accelerometers, kick motors, separation mechanisms, and attitude
control systems are examples of equipment used in both satellites and
ballistic missiles.  According to State, such equipment and
technology merit control for national security reasons. 


   SAFEGUARDS APPLIED TO COMMERCE
   AND STATE SATELLITE EXPORTS
---------------------------------------------------------- Chapter 0:6

No export license application for a satellite launch has been denied
under either the State or Commerce systems.  Therefore, the
conditions attached to the license are particularly significant. 

Exports of U.S.  satellites for launch in China are governed by a
government-to-government agreement addressing technology safeguards. 
This agreement establishes the basic authorities for the U.S. 
government to institute controls intended to ensure that sensitive
technology is not inadvertently transferred to China.  This agreement
is one of three government-to-government agreements with China on
satellites.  The others address pricing and liability issues. 

During our 1997 review and in recent discussions, officials pointed
to two principal safeguard mechanisms to protect technologies. 
Safeguard mechanisms include technology transfer control plans and
the presence of Defense Department monitors during the launch of the
satellites. 

  -- Technology transfer control plans are prepared by the exporter
     and approved by Defense.  The plans outline the internal control
     procedures the company will follow to prevent the disclosure of
     technology except as authorized for the integration and launch
     of the satellite.  These plans typically include requirements
     for the presence of Defense monitors at technical meetings with
     Chinese officials as well as procedures to ensure that Defense
     reviews and clears the release of any technical data provided by
     the company. 

  -- Defense monitors at the launch help ensure that the physical
     security over the satellite is maintained and monitor any
     on-site technical meetings between the company and Chinese
     officials.  Authority for these monitors to perform this work in
     China is granted under the terms of the government-to-government
     safeguards agreement. 

Additional government control may be exercised on technology
transfers through State's licensing of technical assistance and
technical data.  State technical assistance agreements detail the
types of information that can be provided and give Defense an
opportunity to scrutinize the type of information being considered
for export.  Technical assistance agreements, however, are not always
required for satellite exports to China.  While such licenses were
required for satellites licensed for export by State,
Commerce-licensed satellites do not have a separate technical
assistance licensing requirement.\4


--------------------
\4 A Commerce-licensed satellite would also require a State technical
assistance license if the technical discussions exceeded the basic
information required to attach the satellite to the rocket, commonly
described as "form, fit, and function" data. 


   OBSERVATIONS ON THE CURRENT
   EXPORT CONTROL SYSTEM
---------------------------------------------------------- Chapter 0:7

The addition of new controls over satellites transferred to
Commerce's jurisdiction in 1996 addressed some of the key areas where
the Commerce procedures are less stringent than those at State. 
There remain, however, differences in how the export of satellites
are controlled under these new procedures. 

  -- Congressional notification requirements no longer apply,
     although the Congress is currently notified because of the
     Tiananmen waiver process. 

  -- Sanctions do not always apply to items under Commerce's
     jurisdiction.  For example, under the 1993 Missile Technology
     sanctions, sanctions were not imposed on satellites that
     included missile-related components. 

  -- Defense's power to influence the decision-making process has
     diminished since the transfer.  When under State jurisdiction,
     State and Defense officials stated that State would routinely
     defer to the recommendations of Defense if national security
     concerns were raised.  Under Commerce jurisdiction, Defense must
     now either persuade a majority of other agencies to agree with
     its position to stop an export or escalate their objection to
     the cabinet-level Export Administration Review Board, an event
     that has not occurred in recent years. 

  -- Technical information may not be as clearly controlled under the
     Commerce system.  Unlike State, Commerce does not require a
     company to obtain an export license to market a satellite. 
     Commerce regulations also do not have a separate export
     commodity control category for technical data, leaving it
     unclear how this information is licensed.  Commerce has informed
     one large satellite maker that some of this technical data does
     not require an individual license. 

  -- The additional controls applied to the militarily sensitive
     commercial communications satellites transferred to Commerce's
     control in 1996 were not applied to the satellites transferred
     in 1992.  These satellites are therefore reviewed under the
     normal interagency process and are subject to more limited
     controls. 

Mr.  Chairman, this concludes my prepared statement.  I would be
happy to respond to any questions you or other Members of the
Committee may have. 


MILITARILY SENSITIVE
CHARACTERISTICS INTEGRATED IN
COMMERCIAL COMMUNICATIONS
SATELLITES
=========================================================== Appendix I

                                                   Military Sensitivity of
                                                   Characteristics Exceeding
Component or                                       Certain Performance
Characteristic       Definition                    Parameters
-------------------  ----------------------------  -----------------------------
Antijam capability   Antennas and/or antenna       Ensures that communications
                     systems with the ability to   remain open during crises.
                     respond to incoming
                     interference by adaptively
                     reducing antenna gain in the
                     direction of the
                     interference.

Antenna              Allows a satellite to         An antenna aimed at a spot
                     receive incoming signals.     roughly 200 nautical miles in
                                                   diameter or less can become a
                                                   sensitive radio listening
                                                   device and is very effective
                                                   against ground-based
                                                   interception efforts.

Crosslinks           Provide the capability to     Permit the expansion of
                     transmit data from one        regional satellite
                     satellite to another without  communication coverage to
                     going through a ground        global coverage and provides
                     station.                      source-to-destination
                                                   connectivity that can span
                                                   the globe. They are very
                                                   difficult to intercept and
                                                   permit very secure
                                                   communications.

Baseband processing  Allows a satellite to switch  On-board switching can
                     from one frequency to         provide resistance to jamming
                     another with an on-board      of signals.
                     processor.

Encryption devices   Scramble signals and data     Allow telemetry and control
                     transmitted to and from a     of a satellite, which provide
                     satellite.                    positive control and deny
                                                   unauthorized access. Certain
                                                   encryption capabilities have
                                                   significant intelligence
                                                   features important to the
                                                   National Security Agency.

Radiation-hardened   Provide protection from       Permit a satellite to operate
devices              natural and man-made          in nuclear war environments
                     radiation environment in      and may enable its electronic
                     space, which can be harmful   components to survive a
                     to electronic circuits.       nuclear explosion.

Propulsion system    Allows rapid changes when     Military maneuvers require
                     the satellite is on orbit.    that a satellite have the
                                                   capability to accelerate
                                                   faster than a certain speed
                                                   to cover new areas of
                                                   interest.

Pointing accuracy    Provides a low probability    High performance pointing
                     that a signal will be         capabilities provide superior
                     intercepted.                  intelligence-gathering
                                                   capabilities.

Kick motors          Used to deliver satellites    If the motors can be
                     to their proper orbital       restarted, the satellite can
                     slots.                        execute military maneuvers
                                                   because it can move to cover
                                                   new areas.
--------------------------------------------------------------------------------

*** End of document. ***